The number of Americans filing applications for unemployment benefits unexpectedly rose last week, which could add to concerns that the U.S. labour market was losing steam after job growth slowed sharply in May.
Other data on Thursday showed import prices fell by the most in five months in May amid a broad decline in the cost of goods, the latest indication of muted inflation pressures. The import deflation supports expectations that the Federal Reserve will cut interest rates this year.
U.S. central bank policy-makers are scheduled to meet on June 18 to 19 against the backdrop of rising trade tensions. Financial markets have priced in at least two rate cuts by the end of 2019. A rate cut is not expected next Wednesday.
“Combined with increased business uncertainty from rising trade tensions and slowing domestic growth, softer inflation should prompt the Fed to ease policy by year end,” said Jake McRobie, a U.S. economist at Oxford Economics in New York.
Initial claims for state unemployment benefits rose 3,000 to a seasonally adjusted 222,000 for the week ended June 8. Economists polled by Reuters had forecast claims decreasing to 216,000 in the latest week.
While layoffs remain relatively low, the third straight weekly increase in claims suggests some softening in labour market conditions. The four-week moving average of claims, considered a better measure of labour market trends as it irons out week-to-week volatility, rose 2,500 to 217,750 last week.
“Claims have been roughly flat over the past couple of months, a potential sign that job growth is slowing,” said Maria Cosma, an economist at Moody’s Analytics in West Chester, Pa. “Nevertheless, jobless claims aren’t sending any warning signals just yet.”
The dollar was little changed against a basket of currencies, while U.S. Treasury prices rose. Stocks on Wall Street were trading higher.
The economy created only 75,000 jobs in May, with wages increasing at their slowest annual pace in eight months, the government reported last week. The slowdown in hiring occurred before a recent escalation in trade tensions between the United States and China, raising fears of a sharp deceleration in economic growth.
U.S. President Donald Trump in early May imposed additional tariffs of up to 25 per cent on US$200-billion of Chinese goods, prompting retaliation by Beijing. Mr. Trump on Monday threatened more duties on Chinese imports if no deal was reached with Chinese President Xi Jinping by the conclusion of the Group of 20 summit later this month in Japan.
A tariff on all goods from Mexico to force authorities in that country to stop immigrants from Central America from crossing the border into the U.S. was narrowly averted after the two countries struck an agreement late last Friday.
Data so far suggest a step-down in economic growth in the second quarter after a temporary boost from exports and an accumulation of inventory early in the year. In addition to the moderation in hiring last month, manufacturing output, home sales and exports fell in April, while consumer spending cooled.
The Atlanta Fed forecasts gross domestic product will rise at a 1.4-per-cent annualized rate in the April-June quarter. The economy grew at a 3.1-per-cent pace in the first quarter.
In another report on Thursday, the Labour Department said import prices dropped 0.3 per cent last month, the biggest decline since last December, after edging up 0.1 per cent in April. In the 12 months through May, import prices fell 1.5 per cent after decreasing 0.3 per cent in April. The report came on the heels of data on Wednesday showing consumer prices remained tame in May.
Import prices exclude duties. In May, prices for imported fuels and lubricants declined 1 per cent after rising 1.7 per cent in the prior month. Imported food prices dropped 0.8 per cent last month after surging 2.7 per cent in April.
Excluding fuels and food, import prices slipped 0.2 per cent in May after falling 0.3 per cent in the prior month. So-called core import prices decreased 1.5 per cent in the 12 months through May. Although the dollar has weakened a bit this year, its gains last year against the currencies of the United States’ main trading partners continue to depress core import prices.
The cost of imported capital goods declined, but prices for imported consumer goods excluding automobiles were unchanged. The cost of goods imported from China edged down 0.1 per cent last month after falling 0.2 per cent in April. Prices fell 1.4 per cent in the 12 months through May, the largest drop since February, 2017.
“The impact of tariff hikes on Chinese goods continues to be primarily absorbed by the U.S. rather than China at this point probably more on profit margins than via higher consumer prices,” said John Ryding, chief economist at RDQ Economics in New York.